Smith & Nephew Plc · LSE:SN.
Smith & Nephew — Q2 2005 Earnings Presentation
45 slides from Smith & Nephew's earnings presentation, 2005
Slide 1: Smith & Nephew 2005 second quarter & interim results
Smith & Nephew 2005 second quarter & interim results: Continued momentum across the group
Slide 2: Forward looking statements
Forward looking statements This presentation contains certain "forward-looking statements" within the meaning of the US Private Securities Litigation Reform Act of 1995. In particular, statements regarding expected revenue growth and operating margins discussed under "Outlook" are forward- looking s
Slide 3: Chris O'Donnell, Chief Executive
Chris O’Donnell Chief Executive
Slide 4: Agenda
Agenda Business highlights Chris O’Donnell Financial results Peter Hooley Business review Chris O’Donnell Advanced Wound Management Jim Dick Questions and answers All figures are for Q2 2005 unless otherwise stated 4
Slide 5: Business highlights Q2 2005
Business highlights Q2 2005 • Revenue growth to 12% in Q2 • Orthopaedics continues to lead market at 18% • Endoscopy predicted slower quarter, at 7% • Advanced Wound Management improves to 6% All revenue increases are given after adjusting for the effect of translation into sterling, sales days in Q
Slide 6: Peter Hooley, Finance Director
Peter Hooley Finance Director
Slide 7: Financial highlights Q2 2005
Financial highlights Q2 2005 • Revenue growth of 12% in Q2 and H1 • Margin improves to 20% in Q2 and H1 • EPSA growth 16% in Q2 and H1 • Dividend increase of 10% for H1 • Endoscopy to close a US facility All revenue increases are given after adjusting for the effect of translation into sterling, sal
Slide 8: Trading results Q2 2005
Trading results Q2 2005 Second Quarter Half Year 2004 2005 2004 2005 £m £m £m £m Revenue 307 351 + 14% 609 681 + 12% Trading profit 59½ 70 + 18% 115 136 + 18% Interest and finance costs ½ 1 1 3 60 71 116 139 Taxation (17) (21) (34) (42) Joint venture 4 4½ 8 8 Attributable profit before 47 54 ½ + 17%
Slide 9: Results in US dollars – Q2
Results in US dollars – Q2 - - - - - - - - - Q2 - - - - - - - - - - - - - - - - - - H1 - - - - - - - - - 2004 2005 2004 2005 Revenue $559m $643m +15% $1115m $1270m +14% Earnings per ADS $0.46 $0.54 +17% $0.89 $1.05 +18% Reported revenue and earnings per ADS before amortisation of acquisition intangi
Slide 10: Revenue growth 2005
Revenue growth 2005 Reported Acquisitions Currency Sales Days Underlying Quarter 2 % % % % % Orthopaedics 20 - (½) (1½) 18 Endoscopy 9 - (½) (1½) 7 Wound Management 8 - (½) (1½) 6 Group 14 - (½) (1½) 12 Half Year Orthopaedics 18 (2) 1 1 18 Endoscopy 8 - - 1 9 Wound Management 5 - (1) 1 5 Group 12 (1
Slide 11: Geographic revenue growth 2005
Geographic revenue growth 2005 US Growth Europe Growth ROW Growth Total Growth Quarter 2 £m % £m % £m % £m % Orthopaedics 108 22 37 10 30 21 175 18 Endoscopy 44 2 24 11 14 16 82 7 Wound Management 19 -4 51 6 24 12 94 6 171 13 112 9 68 16 351 12 Half Year Orthopaedics 209 22 75 5 56 19 340 18 Endosco
Slide 12: Profitability Q2 2005
Profitability Q2 2005 - - - - - - - - - Q2 - - - - - - - - - H1 Revenue EBITA Margin Margin £m £m % % 2005 Orthopaedics 175 42 23.9 24.0 Endoscopy 82 16 20.0 20.0 Advanced Wound Management 94 12 12.8 12.2 351 70 20.0 19.9 2004 Orthopaedics 145 33 23.1 22.9 Endoscopy 75 14 19.0 18.9 Advanced Wound Ma
Slide 13: Cash flow
Cash flow H1 2004 H1 2005 £m £m Trading cash flow 47 52 Rationalisation/Macrotexture (2) (13) Operating cash flow after capex 45 39 Joint venture 6 6 Interest and tax (14) (30) Free cash flow 37 15 Dividends (29) (30) Acquisitions (76) (9) Shares 2 5 Net cash flow (66) (19) Currency 21 (40) Opening
Slide 14: Chris O'Donnell, Chief Executive
Chris O’Donnell Chief Executive
Slide 15: Smith & Nephew strategy
Smith & Nephew strategy • Exploit positive market dynamics • Build on technology leadership to expand markets • Organic growth - innovative product pipeline - sales force development • Pursue synergistic technology acquisitions • Build on Smith & Nephew brand 15
Slide 16: Orthopaedics
Orthopaedics Global market growth 2004 and 2005 13%* Delivering growth substantially ahead of market Global growth 2005 Q2 H1 20% • Global revenue growth 18% 18% 18% 16% US growth 22% 22% 14% Outside US growth 14% 11% 12% 10% • MIS and OXINIUM™ drive knee and hip 8% revenues 6% • BHR drives hips out
Slide 17: Orthopaedics growth prospects
Orthopaedics growth prospects • Sales force investment and segmentation • OXINIUM™ technology – extended to revision knee • Resurfacing hip – continued growth outside US – US approval/launch • PERI-LOC™ plating system – lower extremity and targeter launched – upper extremity 2006 • Extended indicati
Slide 18: Endoscopy
Endoscopy Arthroscopy global market growth 8%* Q2 H1 • Global revenue growth 7% 9% US growth 2% 8% Outside US growth 13% 10% • Knee/shoulder repair driving growth • Timing of camera launch slows US sales • New products 22% of revenues H1 • Manufacturing restructure All revenue growth numbers are on
Slide 19: Endoscopy growth prospects
Endoscopy growth prospects • Specialised procedure sales force driving repair growth • New 400 Series camera launched in June • Excellent market acceptance of DIGITAL OR™ • Long term growth opportunity in hip arthroscopy 19
Slide 20: Endoscopy manufacturing restructure
Endoscopy manufacturing restructure • Close Andover manufacturing • Improve utilisation of Andover Mansfield and ions utio n erat tr ib Manufacturing Oklahoma facilities em b ly o p g/ di s processes in Ass ho us Mansfield • 1% margin W are improvement Oklahoma expected in 2007 City Outsource 20
Slide 21: Advanced Wound Management
Advanced Wound Management Global market growth 8%*, 12%* including KCI Q2 H1 • Global revenue growth 6% 5% US growth (4)% (6)% ** Outside US growth 8% 8% • Strong performance outside US • US performance improving - lower intermediate product contract sales - US end user sales up 7% • New products 16
Slide 22: Advanced Wound Management – Jim Dick, President
Advanced Wound Management Jim Dick, President
Slide 23: Advanced Wound Management business
Advanced Wound Management business We provide innovative solutions to help improve the life of people with serious wounds Acute • Burns, post operative wounds • Life threatening • Scarring Chronic • Leg ulcers, pressure ulcers, diabetic foot ulcers • Quality of life • Cost burden 23
Slide 24: Sustainable growth opportunity
Sustainable growth opportunity • Long term growth fundamentals are strong – Ageing population – increased chronic wounds – Significant potential for converting wounds to advanced treatments – Advancing technology – Patient expectations • Underlying medical issues are driving growth – Diabetes – Obes
Slide 25: Strong economic arguments
Strong economic arguments • Products represent small proportion of the cost of treatment Cost of healing • Increasing our share of reduced cost to provider • Health economics driving use of advanced technology Traditional Advanced Active Nursing time Wound management products Other costs 25
Slide 26: Market position
Market position Revenue Smith & • Global reach Nephew 19% Convatec • Leading positions in foams, KCI 21% 12% silver and hydrosurgery Johnson & Johnson • Technology increasing market 9% Other 3M value 31% 8% Market size £1.9 bn • KCI addresses 2% of wounds Wounds treated treated Smith & Nephew 23% KC
Slide 27: Current business challenges
Current business challenges • Leverage superbrand growth • Accelerate US growth • Build DERMAGRAFT™ profitability • Improve margins 27
Slide 28: Leverage superbrands globally for growth and share gain
Leverage superbrands globally for growth and share gain ALLEVYN™ - The global standard for exudate management H1 +13% Superbrands Superbrands and Films, gels, 33% new technology compression, 37% skincare ACTICOAT™ - Leading the way in 67% managing infection H1 +32% 28
Slide 29: ALLEVYN the global standard for exudate management
ALLEVYN™ the global standard for exudate management • Largest brand – H1 revenues £47m +13% • Strong broad based therapy range across various channels • Continues to take market share • Brand extensions strengthen range - Improved ALLEVYN™ Plus launched • Global Brand Director 29
Slide 30: ACTICOAT leading the way in managing infection
ACTICOAT™ leading the way in managing infection • Revenues of £12m H1 +32% • New ACTICOAT™ Moisture Control launch in US • MRSA and hospital acquired infection opportunity • Continuous stream of clinical evidence • Global Brand Director 30
Slide 31: Accelerate US growth: status
Accelerate US growth: status Q1 Q2 H1 Revenue £86m £94m £180m Global growth 4% 6% 5% Outside US growth 8% 8% 8% US growth -7% -4% -6% US (excluding intermediates) - 1% - H1 US end user traced sales grew 7% H2 US end user growth expected to continue on trend – after intermediates, H2 revenues expecte
Slide 32: Accelerate US growth: action plan
Accelerate US growth: action plan • Large unconverted market, only 20% of global revenues • New management team • Investment in sales force and promotion • Segmentation of sales force – ALLEVYN™ – ACTICOAT™ – DERMAGRAFT™ – VERSAJET™ • Brand driven strategy 32
Slide 33: Build DERMAGRAFT profitability
Build DERMAGRAFT™ profitability • Clinical performance exceeds expectations • Strong economic arguments for price improvement • Deeper penetration of fewer accounts driving productivity • Venous leg ulcer approval in progress 33
Slide 34: Improve margins
Improve margins • Sales force productivity • Operational efficiencies – logistics rationalisation – manufacturing automation • DERMAGRAFT™ profitability • Targeting 17% margin for 2008 34
Slide 35: Growth prospects
Growth prospects • Global product rollout 2005/2006 – ALLEVYN™ Plus – ACTICOAT™ Moisture Control • Sales force investment – US +15% year on year in H1 – Japan +13% year on year in H1 • Forward product programme 2006/2008 – ALLEVYN™ major product upgrades – ACTICOAT™ range/geographical expansion • VE
Slide 36: VERSAJET – the next generation in debridement
VERSAJET™ - the next generation in debridement • Hydrosurgery system for fast effective debridement • Patented technology US revenue progression • Positive economic case Actual 10% Growth Rate • Exciting first year performance • Strong potential for growth P1 P2 P3 P4 P5 P6 P7 P8 P9 P10 P11 P12 P1 P
Slide 37: Advanced Wound Management value builders
Advanced Wound Management value builders • Favourable market dynamics • Leveraging strong market position • Innovative solutions for serious wounds • Superbrands to drive growth • Clear margin progression plans Attractive market for strong value creation 37
Slide 38: Chris O'Donnell, Chief Executive
Chris O’Donnell Chief Executive
Slide 39: Summary and outlook
Summary and outlook • Growing and expanding markets driving revenues • Orthopaedics market continues fundamentally strong – We continue to lead orthopaedic growth • Improving growth prospects in Endoscopy and Advanced Wound Management • New product launches taking share and expanding markets • Sales
Slide 40: Appendix
me smith&nephew Appendix
Slide 41: New products 2005
New products 2005 Q1 Q2 Q3 Q4 GENESIS™ II OXINIUM™ knee ACTICOAT™ moisture control – Ceramic-on-ceramic hip PROFIX™ 5 in 1 revision femoral Europe PERI-LOC™ interlocking CONDOR™ Digital Operating Disc Diagnostic System for the plating system for bone repair Room (DOR) control system spine IMHS intra
Slide 42: Macrotexture knee withdrawal
Macrotexture knee withdrawal • 2971 implanted before voluntary withdrawal in August 2003 • 897* revisions confirmed, of which 627* settled, total cost £63m*, of which £32m* is in dispute with our insurers • Primary insurer provided coverage until policy exhausted and as one of three first excess lay
Slide 43: Quarterly revenues
Quarterly revenues 2005 Q1 Q2 H1 Revenue £m Growth % Revenue £m Growth % Revenue £m Growth % Orthopaedics Knees 61 17% 64 20% 125 18% Hips 45 12%* 48 16% 93 14%* Trauma 39 14% 42 13% 81 14% Clinical Therapies 14 51% 18 42% 32 46% Endoscopy Repair 23 21% 24 23% 47 22% Visualisation & DOR 14 21% 16 3%
Slide 44: Quarterly phasing under IFRS
Quarterly phasing under IFRS 2004 2005 Q1 Q2 Q3 Q4 Full Year Q1 Q2 Revenue growth (underlying) Ortho 17% 14% 19% 20% 17% 17% 18% Endo 8% 6% 8% 16% 9% 10% 7% Wound 7% 3% 6% 5% 5% 4% 6% 12% 8% 12% 14% 11½% 11½% 12% Revenue £302m £307m £307m £332m £1249m £330m £351m Trading profit* £56m £59½m £59m £75½
Slide 45: We are smith&nephew
se We are smith&nephew